Choosing the threshold in extreme value analysis

Abstract: One of the two dominant approaches for univariate extreme value analysis is to model exceedances above a large threshold, the choice of which has a large impact on inference and whose uncertainty is often subsequently ignored. In this article we review more than 40 threshold selection procedures, including semiparametric methods based on Hill's estimator, visual diagnostics, goodness-of-fit tests, and others based on extended generalized Pareto models. Starting with the statistical properties underlying the various proposals, we provide a critical assessment of their strengths and weaknesses, discuss how they might be automated and describe the results of an extensive simulation study used to identify the most promising procedures. The approaches are compared using a long time series of daily rainfall totals from Padova.